If the Federal Reserve increases interest rates, ceteris paribus
A) the supply curve of U.S. dollars shifts leftward and the supply curve of European euros shifts rightward.
B) the demand curve for U.S. dollars shifts leftward and the supply curve of U.S. dollars shifts rightward.
C) the demand curve for U.S. dollars and the demand curve for European euros both shift rightward.
D) the supply curve of U.S. dollars shifts rightward and the supply curve of European euros shifts leftward

Question

Quizplus · Accepted Answer

An increase in interest rates in the US makes it more attractive to hold US dollars, increasing the demand for US dollars and shifting the demand curve rightward. At the same time, it makes it less attractive to hold euros, decreasing the demand for euros and shifting the demand curve leftward.

If the Federal Reserve Increases Interest Rates, Ceteris Paribus